■553 



^ ^^A■^ 



^9- 



6.Si> Congress } 



SENATE 



/ Document 
\ No. 200 



THE 
PROPOSED PATENT LAW 

REVISION 



AN ARTICLE 



FRONT TIIK HARVARD LAW REVIEW. VOL. XXVI, 

NO. 2. RELA riNC; TO THE PROPOSED PATENT 

LAW REVISION— WHAT IT MEANS TO INVEN- 

rORS, MANUFACTURERS. DEALERS, 

AND THE PUBLIC 



Bv 



GILBERr II. MONTAGUE 



(Copyright, 1912, by rhe Harvard Law Review Association) 



PRESENTED BY MR. BRANDEGEE 
OCTOBER 1, 1913. — Ordered to be printed 



WASHINGTON 







D. OF D. 

Us ms 



vCS* 



^. 






5 

v" 



THE PROPOSED PATENT LAW REVISION. 



Oil the ovo of tho a<]j()nrnnuMi( of Con^ross, on Aii<]:ust S, 1912, the 
ComiiiittcMi on Pat(»nts rcportcil hark to tho JIouso of lioprcsonta- 
tivos the Oldiicld revision and ((xhlication of tho patont statutes ^ 
with an amon(huont in tho naturo of a sul)stituto, and rocommondod 
that tliis suhstituti^ ho j)assod. Tho ooniniittoo's purposo, expressed 
by its chalrnian, who is also the autli(>r of tho hill, was to ''"^ive 
everyhody an opportunity to study the question, and pfivo the people 
of tho country tho opportunity to see what is j)rovi(h'(i for in tho hill, 
and ascertain what i^ tho scMitimont of tho country upon tho pro- 
posal;" - and then to press tho hill for |)a.ssajT:e in tho session hotrin- 
nin^r in I)<'conil)or, 1912. 

I)urin<^ tho >>prin<x of 1912, h<'arin;;s wore liold for several weeks by 
tho Conunittees on the .ludieiarv and on Pa tenths of the House of 
Kcprcscntativos u|)on various |)n»posals l«> amend tho patent laws. 
Tho opportunity for porxuis otlior tlum tho sj)onsors of tlu* pro- 
posed legislation to learn of these hearings an<l to attend them was 
nocc^ssarily limited; aiid even amon<r those who attended, tlioir im- 

f)orlanco was probably not fully realized. For no one could then 
lave anticipated that practi<"allv all of the chanj^es advanced in those 
nroposals would be combined In the substitute bill to be reported. 
\evertheloss, witnesses tostitiod. written comnmnications were re- 
ceived, and suj;<,'ostions came "from practi«ally every part of the 
country."'' 'We had before us," said tho chairman of th(» Com- 
mittee «»n Patents, ''manufacturers of patontocj articles fnuu almost 
every State in tho I'liion, and wo had prominent inventors and 
prominent patent attorneys before us." * But out of the 00 persons 
whoso tostimonv and coiumurncations wore reported in those h(*ar- 
\n^>. l(»ss than half a doz<»n favore(l tho pro|)osals which have boon 
embodied in tho bill recommended.' 

In all o-s<»ntial-. tlu' provi>i.»n- which evoked tho eni|)hatic oppo- 
sition of tho ovorwhohninj; nnijority of mamifactiirors. inventors, 
and n»|>re";entativ(»-. of c')nunor<ial and sciontilic a-^sociations appear- 
ing: before the Conunittee on Patent-i in opposition to tho orit^inal 
bill reappear in tho substitute. In addition, tho s)ibstituto contains 
a nuiid)or of provi'-ions oxtondinj: the apj)lication of tho Sliornian 

I H. R Mii: 

' Coi • KcH-ord. Aug. >. 1912. p ll.TW. 

* Kr; CoTnmitroo nn ralpnis. fuJd Cone., 2d .sess., Uoiiso of Hoprcsentaf JVC's. No. llt.l. .Vug. S. 
m-2(\ •). p. 1. 

♦0«M >. 1912. p. i\xa. 

• '• ' •'-- - - 'siKh as If. Wani l-.-onanl. Dr. L. II. 

)' .ii<lt F. Carripr, jr., Sppncor Millor, and 

' ' Frf^dorick V. Ki.sh, Livin^'.stoii 'MfTord, 

1.01JL-. 1). lwaii<lt>i.>. K. J. I'l unlit'. .-vtiiiiK'i owt-n Kilinniid.s, Hi)rac«' I'otiil. Frank I>. Dyor, Walter F. Rogprs, 
ftnd Willmni W I>fvk'o; Tnnnnfnrfnrers rrprt^smnni' <-«.ncorns such a.s Thomas \. FdLson, Inc., V. S. Mail 

' ' ' ■• " .„.r Co.. Cj" ' • y Razor Co.. Columbia I'honoirrajih Co., Brown 

'^ ' o., R. H .V: Rn».. and the I.idporwood Mfi:. Co.: roprosont- 

i^' .ii,,iw ., '• "tors' <;iiild. the .\mrrir-an Institute of Chem- 

'*"'' '■-^ ■;, the Merchants' .Vssociation of .'^ew "^'ork 

Citv. - . lun'rs. the F'ennsylvania Retail Jewelers' 
ARBociatiuii. iho ( h.iiiiUT.N of toiiiimrcc of Kotlu-i>icr and of Cleveland, and the Patent Law Association 
of Washington, D. C. 



4 THE PROPOSED PATENT LAW KEVISIOK. 

Antitrust Act, wherever patents are involved, to specific transac- 
tions which are not now covered by that act and which, if no patents 
were involved, would under the existing law, or even under the other 
provisions of the substitute bill, lie outside the prohibition of the 
Sherman Antitrust Act. These were not contemplated in the original 
Oldfield bill, were neither discussed nor suggested by anyone upon 
the hearings, and were not foreshadowed by any patent legislation 
previously introduced in either branch of Congress. In scheme, they 
somewhat resemble the proposed amendments to the Sherman Anti- 
trust Act introduced earlier in the session by Senator La FoUette 
and Representative Lenroot;^ except that their bilb avowedly 
applied to all articles of commerce, patented as well as unpatented, 
while the substitute Oldfield bill, by limiting its application exclu- 
sively to patented articles, discriminates grossly in favor of unpat- 
ented articles. 

The three main proposals of the bill are briefly these: 

Compulsory licenses are authorized by providing ^ that if any 
applicant shall establish in a Federal district court that a patent 
owner who has purchased a patented invention from the original 
inventor is withholding it ''with the result of preventing any other 
person from using the patented process" more than three years 
after the patent is issued, the court shall order the patent owner 
to grant to the applicant a license to use the invention upon such 
terms or royalty as the court deems just. 

The nonenforcement of license restrictions is secured by provid- 
ing ^ that the patent owner shall no longer be permitted to bring 
an action for infringement of the patent, when the purchaser, lessee, 
or licensee of the patented article has committed a breach of the 
contract of sale, lease, or license by the conditions of which he ob- 
tained the patented article. 

The extension of the Sherman Antitrust Act is effected by provid- 
ing ^ that any patent, used as part of any combination in restraint of 
trade or commerce among the several States or with foreign nations, 
or to monopolize or in any attempt to monopolize such trade, or 
used in any manner prohibited by this act, may be condemned in the 
manner provided by law for the forfeiture, seizure, and condemna- 
tion of property illegally imported; and also by providing^ that a 
violation of the Sherman Antitrust Act shall be conclusively pre- 
sumed from any one of a long list of the most common business 
transactions, regardless of any surrounding circumstances.^ 

1 S. 4931, H. R. 15926. 

2 Sec. 1. 
- 3 Sec. 2. 

4 Sec. 4. 

5 Sec. 5. 

6 Thus, a violation of the Sherman Antitrust Act sliall be conclusively presumed: (a) When the vendor 
of any patented article attempts to restrict the price at which such article may be resold; (6) when the 
vendor of any patented article attempts to restrain a customer from buying or using an article obtained 
from somebody else, whether such attempt be made by agreement against such purchase, or by a condition 
of sale of the patented article sold, or by making in the price of the patented article any discrimination 
based upon whether the customer buys the article from somebody else; (c) when the vendor of anj^ pat- 
ented article, with a view to preventing competition with such article, acquires any other patent or license; 
(d) when the vendor of any patented article, with a view to restraining competition, makes in the price of 
the patented article any discrimination (other than the ordinary wholesale discount) based upon whether 
the customer buys from him goods of a particular quantity or aggregate price; (t ) when the vendor of any 
patented article attempts to restrain competition, either by refusing to supply somebody, or by consenting 
to supply somebody only upon terms or conditions less favorable than are accorded to anybody else; (/) 
when the vendor of any patented article attempts to restrain competition by supplying to somebody, in 
any particular territory, patented articles upon terms or conditions more favorable than are accorded to 
other customers; (g) when the vendor of any patented article attempts to restrain competition by making 
any arrangement under which he shall not sell such patented article to certain classes of persons, or to those 
doing business in certain territory; (h) when the person dealing in any patented article does business 
under any name other than his own or that of his firm or corporation; (i) when the vendor of any patented 



THE PROPOSED PATENT LAW REVISION. 5 

Tho provocation for those radical innovations and sweeping rh anodes, 
acconhng to the report accompanyin<^ tlie bill/ was: 

First. Tho ovil.s iirisinq: from the vendor of a patontprl artirlo (ixiiic: the priro at 
which the arti( Ic inu<t he rt'sohl to tho |)uhlic. 

Set-oiitl. The evils ari^iiii; from tho voiul »rs of pato'Ued articles prohihiliiiir their 
use except in connection with other u.ipatented arti( les purcha.se<l from them. 

Thinl The evils arisiiii; from owiwrs of |)atenls suppre.s.^ini; the same or prohibit- 
inij tlieir use in order to prevent competition with other patented or nnpatented 
articles sold hy such f)wnerH of j)alent.s. 

As a rcrncfjy for these I'vils. it was prjoosinl to limit the ai)solute rit;ht now vested 
in the owners <»f patents, u'ldcr which tney determine to what extent and in what 
manner the use of the patent or pat<'nl<Ml ariide .>hall he permilted. With this in 
view, it was propo.s4Ml to take away speciljcally the rii;hl recoijni/ed hy the lower 
Federal courts to lix under the patJMit law prices at which arii( les shall be sold at 
retail, and also to lake away the riifhl re<ently coiilirmecl in the Mimeofjrraph Case 
to prohibit patented machines frfim bein^' used otherwise ih;iii in (onn.-ii i,.i. wifh 
unpaiciited materials furni'*hed by the veiulor or licensor ' 

jWhether those "evils" are actual, and whether tlu* ])roposed 
chanj^es in the patent law will hrin^^ any remedy or advantage, 
were the (jucstioiis to which discus-ion was exclusively directed in 
the hearings upon the original Oldiield hill, in which the overwhelming 
inimher of witnesses opposed the c(|nclu^i<»n> of the commit t(M\ 

Before turning to this testimony, the fundamental rights of a 
patent owner un ler the laws of the United States may be briefly 
stated. 

Congre^^s has the p >wer under Article 1, .section s of ihe Constitu- 
tion, to 'prom«)t(» the progr(»ss of seiene(» and useful arts by securing 
for limited times to authors and inventors, the exclusive right to their 
respective writings and discoveric^s." 

Pursuant to tins p.>wer ('ongress has provided in section 4884 of 
the ReWsed Statutes that a patent owner slndl have the "exclusive 
riL'ht to make. use. and vend the invention or discovery." As the 
piu}Useol(»gy of the statute indicate^, this exclusive right consists ()f 
three components, i. e.. the (exclusive right to make, the exclusive 
right to un(\ and the exclusive right to vend the patented article. 

artipl'^ altoiupf s to pn-vont compptitlon »«y supplying such article at a price at or t)olow tho cost of produc- 
tion aiul <listrit>iitlon. , . r.. ... 

Tho liill makfs th.'s«»fnrthor provisions: Wlvm'vrn* ion of tho .Sh<^nnan Antitrust 

Act is stiown to control anv pat«'nt«w| nrtjrl.^ riMvsnnHM ifijctiin . prothiction. Krn<>ral 

con.sninpti«.n. or usi>. an«I'-n<. i.. imiu ii.-ly siiJ.stitiiU- anoth.T article 

thon'for of .-iiial utilitv,'* th<' . nwrn-r to coiitinn." to siijiply th<' pat.-nted 

nr(,..i. • ,,„i,l ....,,.. ,>tK. r .,(..,. ... ,; I 'ii»>i) paymt'nt of fithfr "a roasonatile 

J.,, amoiini of c<>: n i«a.vaM«> iicoording to any valid 

^,„ • in n fivil jt lint n '1«'f"n'l!mt has violated the 

Sheruiiui .\ntitru.st .\rt 1.. •! shall const it uU;. 

a.H against such «l.«f..ndant. i''^ t^f ''VV '" ''*^°'" 

Qf — -• -- - -■ ,.;.-: ., ; c. 7). ^\ hi'niM'or a 

J, -lu-rman .\nmnist Act l)y tho use 
Qf luv; to havo Iw'on injured by such 
condiHt mav. wuJiin ilir.^- v.'ar> tii-n-Hflor. uit*r%.iif, hjkI .shall !«• u<lmitlo<l as a party to tho suit, and 
shall havo judgnv nt for th'>'<lamne"s n>«nUine from snoh injurv in just th • .sam.^ manner and oxlont as if 
ho had U'Kun an in<l' ■ ' ' Whon a coml'ination has u.sod any 
paU-nt in anv miuin.r -1 to havo violatod the Shorman Anti- 
trust Act. the court ni.. .,•■ • r- , :_ ^ruups of Stockholders or sell It m parcels 

as a wholl- and fori. id former sKKkhoiders lo huv at such sale (s.-c. 'J). Whenever it appears in a civil suit 
by the Fedoml Ciovornmont under tlio Sherman Antitni.st Act that a patent has lx«n used in any miinner 
hereinlx'fure prohil>iti>d. anv jwrson or Stat«' thn-atoned with injury may at any time intervene as a party 
(soc. 10) Whenever it is allogf^l in an action I'V the Federal (JovemuK'nt under the Sherman Antitrust 
Act that a r • - • ' ' -i u.s«'d in anv manner hondnlM-fore prohibited, no department or ollicial of the 
United St;i- t to biiv anVthing from the defondant or its subsi'liaries until such alloKation 

"be found '<:. ''^ be iin'found»Hl." unless no substitute of equal utility at a reasonable price can 

bo found (SIK-. 11 ;. In aiiv suit arLsing out of the infrincoment of any patont or the bre^h of any contract 
whatsoi>ver it shall l>e a complete defense that " the plaintifl or the real party in interest at th<' time of the 
making of such contract, or of its aUege<l bn>ach, or at tho time of the allegod infringement, at the time of 
the U'ginnini: of said suit was cngago<l in carrying on business in any manner or to any extent m violation 
of the prgvisions of thus act" (sec. 12J. 
« Report, p. 2. 



THE PROPOSED PATENT LAW REVISION. 

The owner of these three exclusive rights may dispose of them singly, 
or together, or fractionally. If he wishes to manufacture the 
patented article himself, he may keep the exclusive right to make, 
and dispose simply of the exclusive rights to use and to vend. If 
he wishes to manufacture the patented article, and put it out only upon 
some basis which will continue the title in himself, he may keep the 
exclusive rights to make and to vend, and dispose simply of the right 
to use. This right of use he may dispose of entirely or partially, 
according as he wishes. Thus, he may keep the exclusive rights to 
make and to vend, and most of the exclusive right to use, and grant 
only a limited right of use; for instance, the right to use the patented 
article only wdth such supplies and accessory appliances, and only 
under such conditions in respect to sale, lease, license, and use, as 
the patent owner shall prescribe.^ 

The patent owner, like the owner of any other property, ''can 
not be compelled to part with his own, excepting on inducements 
to his liking."^ Owners of unimproved land can not be compelled 
to improve their property, nor — except by eminent domain — to 
allow others to improve it. Similarly, the patent owner can not 
be compelled to use his invention,- nor — except by eminent domain — 
to allow others to use it. Landowners frequently prefer to con- 
tinue to be owners, and to keep the rights of ownership, and to 
allow to others only the partial use of their land, subject to con- 
ditions of lease. Even when disposing of most of their rights of 
ownership, landowners frequently convey a limited title, subject 
to restrictions regarding the character of the improvements that 
shall be erected or the use to which the property shall be put. The 
patent owner's rights are neither greater nor more unusual than 
these familiar rights of landowners. When, therefore, the patent 
owner requires that his property be used only under certain specified 
conditions and for certain specified purposes, and with certain 
specified accessories, he asserts no novel property rights. Indeed, 
the patent ow^ner's rights are much curtailed, as contrasted with 
the rights of other property owners, in that the owners of every 
other form of property may exercise their rights for so long a period 
as they and their successors may desire, while the patent owner may 
exercise none of his rights beyond the duration of his patent, and 
at the expiration of the statutory period of 17 years must relinquish 
to the public all of his rights.^ 

These rights have always been fundamental in American patent 
law. The right ' ' to fix under the patent law prices at which articles 
shall be sold at retail,'' which the committee describes as ''recog- 
nized by the lower Federal courts,"* has been settled by the decisions 
of the Circuit Courts of Appeals of the Third, Seventh, and Eighth 
Circuits;^ and b}^ decisions of Circuit Courts of the First, Second, 

1 Bloomer v. McQuewan, 14 How. (U. S.), 539, 549 (1852); Mitchell v. Hawlev, 16 Wall. (U. S.), 544, 547-548 
(1872); Adams v. Burke, 17 Wall. (U. S.), 453, 45(3 (1873); Bement v. rational Harrow Co., 180 (U. S.), 70, 
88-93 (1902); Hemy v. A. B. Dick Co., 224 (U. S.), 1 (1912); Heaton-Peninsular Button-Fastener Co. v 
Eureka Specialty Co., 77 Fed., 288 (C. C. A., SLxth Ciic, 1890); John D. Park & Sons v. Hartman, 153 Fed. 
24, 27 (C. C. A., Sixth Circ, 1907). See also cases collected in Henry v. A. B. Dick Co., t^upra. 

2 Victor Talking Machine Co. v. The Fair, 123 Fed., 424, 420 (C. C. A., Seventh CiiT.. 1903). 

3 See The Supreme Court on Patents, by Gilbert H. Montague, 21 Yale L. J., 583 (1912). 
* Report, p. 2. 

t-New Jersey Patent Co. v. Schaefer, 178 Fed., 270 (C. C. A., Third Circ, 1909): Victor Talking Machine 
Co. V. The Fair, 123 Fed., 424 (C. C. A., Seventh Circ, 1903); The Fair v. Dover Mfg Co., 100 Fed., 117 
(C. C. A., Seventh Circ, 1908); National Phonograph Co. (-. Schlegel, 128 Fed., 733 (C. C. A., Eighth Circ, 
1904). 



THE PROPOSED PATENT LAW REVISION. 7 

Tliird, Sixth, and Eif]:hth Circuits;' and has been expressly affirmed 
by the Supreme Court. = It rests upon principles established by an 
unbroken line of judicial decisions in the United States.^ The same 
right and the same principles, it may be added, have been established 
in a fine of EnfjlLsh decisions culminating in a unanimous decision of 
the Lords of the Judicial Committee of the Privy Council, which de- 
termines the law for the entire British Empire.* The Mimeograph 
Case,^ which tlie House Committee on Patents states * recently con- 
firmed the right of the patt'iit owner to prohibit patented machines 
from being used otherwise than in connection with unpatented ma- 
terials fiirni>hed by liiniself. was strictly in line \\'ith aU these authori- 
ties. Far from being a recent development, the rule in that case was 
simply an application of the principles established by the unbroken 
trend* of judicial (h'cisions al)oV(' mentioned. How iincliallenged 
tiiese j)rinciple> have been, until the Mirpii>in^' dissentin<; o})inion in 
the Mimeograph case, appears from the decisions of the Supreme 
Court in Cnited States r. Bell Telephone Co.' and Bement r. National 
Harrow Co." and the Paper Bag Patent case,"* in which, it is inter- 
esting to note, the author of this dissenting opinion participated 
and concurred. Notwithstanding tlie forebo<lings expressed in this 
dis-enting opini<»n. a careful rejiding of the (h'cision itself showt^, 
that the Mimeograph ea>e spelU tn)iil)le only for those people who, 
with knowledge of the conchtions on which alone the j)atent owner 
con-ents to part with hi^ })atente(l article, expre-sly agree to these 
conditions in order to obtain tlie article. an<l thereupon deliberately 
sot about to violate their agreement respecting these conditions in 
order to benefit at the expense (>f the ])atent owner: or those people 
who. fullv knowing tiiat a user (»f a patented article ha> expressly 
agreed to the conditions on which alone the patent owner consented 
to part with it. thereupon deliberately instigate such n-<T to break 
his agrecMuent re-pecting the^e conditions in order to benefit at the 
expense of the j)atent owner. As .lustice Wills remarked, speaking 
to this very point in one of the English ca«^es above referred to: 
•' It seems to be common sen^e. and not todepend upon any patent law, 
or other narticular law."'" 

The substitute Oidficld bill proposes to deprive the patent owner 
of the right to sue such pirating dealers and manufactureis as con- 
tributorv infringei-s and to relegate the patent owner to separate 
actions for breach of contract against the army of small users whom 
these pirates instigate to break their agreements. This proposal 
leaves the patent owner virtually without remedy. Even if a thou- 

» Edison n Co. r. Kmr ai. Fed. f(50 (C. C. W. D. Pa., 1901): Ediwn PhonoRraph Co. 

V I'ikc lUi 1 C I) M New Jprsf\ Patent Co. I. Srhaofer, H4 Fe«l.,4:i7 (C. C, E. D. 

Pa., VMM',)-, liu ... .-iioIleiilxT^. V^i M". C , fc. I>. I'a.. I'.HX.). New Jersey Patent Co. v. Schaefer. 

ISQFe^l 171 (C C . E 1). Pa.. 1W»»K .New Jersov I'atent Co. r. Martin. 172 Fe<l., 7«0 (C. C, N. I). Iowa. 
1909): Thoma.s \. Edison (Inc.) r. Ira M. Smith Merrantile Co.. I.SS Fed.. 025 {C C, VV. D. Muh., 1911); 
Aiitomali«- I'emil Shari^ner Co. r. C.oldMnith Hro.s., 191) Fed., 205 (C. C. S. D. N. ^ ., 1911); Indiana 
MfR. I'o., r. Ni.hols A sfiopard Co., 190 Fed., .579 (C. C, E. D. Mich., 1911); Waltham Watoh Co. v. Keene. 

1 Ueinc'nt'i . N at ioiluVn arrow (V. is.. U. S., 70,9;i(19a>>: Henry t. \. IJ. Dick Co.. 224 V S.,1 .«^31 (1912). 

» See authoriii..,, II., io<| in Tho Sherman .\nli-injM .\rt and the Patent Law. by <iilberl II. Montague^ 
21 Vale 1, J md The Supreme Court on Patents, by Gilbert H. Montapne, snpra. , . , ^, 

4 National! . n Co.of .\nstnilia(Ltd.M. MencW |19ll|..\.C.,:W.. cited in Henry i. A. H. !>««•»« t«- 

224 r. S.. 1. 4.' ^l.tl-'). other En^li>;h cases are colUvted in Henry r. -\. B. Dick Co.. '224 I . S., 1,39-4J (1912)» 
and in The Sherman Antitrust .\.t and the Patent Law, by Ciillicrt H. Montague, supra, 
i Henry r. A H. Dick Co.. 224 V. S., 1 (1912i. 

• Report, p. 2. 

' 167 U.S., 224 (1897). 

• 186 r. S., 70(1902). 

•Continental Paper Ban Co. r. Eastern Paper Bag Co., 210 U. S., 405 (1908). 

•« Incandftst^nt Gas Light Co., Ltd., r. Cant«llo, 12 Pat. Cas., 262 (1895), approved and followt^d in 
National Phonograph Co. of Australia (Ltd.) v. Menck 11911], A. C. 336. 



8 THE PROPOSED PATENT LAW REVISION. 

sand such suits were successfully prosecuted, the damages would be 
small in each and uncollectible in most and less than the expense of 
litigation in all. Meanwhile, the patent owner would practically be 
helpless before the instigator of this piracy. 

The evils which the House Committee on Patents declare to be 
their provocation for sweeping away all these patent rights were not 
established by the testimony taken before the committee. 

By numerous witnesses, who cited scores of examples, it was shown 
that the difficulties of merchandising are enormously increased in the 
instance of novelties. All patented articles are novelties at first, and 
most of them continue to be novelties to most of the public until the 
17-year patent period expires. Considering the natural handicap thus 
imposed on the selling of patented articles, and the further fact that 
the patent owner must reap his reward before the expiration of the 
17-year patent period, no aid which the existing law lends to the 
merchandising of patented articles can well be called unfair. In his 
evidence, Mr. Louis D. Brandeis says: 

The fixing of a price has possibly prevented one retail dealer from selling the article 
a little lower than the other, but the fixing of that price has tended not to suppress 
but to develop competition, because it has made it possible in the distribution of those 
goods to go to an expense and to open up another sphere of merchandising which would 
have been absolutely impossible without a fixed price. The whole world can be drawn 
into the field. Every dealer, every small stationer, every small druggist, every small 
hardware man, can be made a purveyor of that article by comprehensive advertis- 
ing. You have stimulated, through the fixed price, the little man as against the 
department store and as against the large unit which may otherwise monopolize that 
trade. * * "^ As you develop the article you are inciting invention, and what is 
more important than the invention, you are inciting the commercial development of 
the competing article.^ 

By the same token, license restrictions agreed to by owners when 
they obtain patented articles solely upon condition that they use 
thern only with supplies that are specially prepared for them, or in 
continuity with machines that are especially adapted to them, or 
in some particular manner requisite in order to accomplish the pur- 
poses for which they are intended, were declared by numerous wit- 
nesses to be both necessary and proper. Mr. H. Ward Leonard, a 
well-known inventor and an officer of the Inventors' Guild, made 
this explanation: 

It may be that the article is of such nature that in order that it shall work properly, 
it shall require very great care in selecting certain conditions of use, certain mate- 
rials to be used in connection with it. It certainly is a fact that in some instances a 
man's market for a good article would be completely destroyed if he could not insure 
himself in seeing that it was properly used after it left his hands. ^ 

The notion that such license restrictions might give patent owners 
the ^'practical monopoly of the market'' for unpatentable products 

1 Hearing before the Committee on Patents, House of Representatives, on H. R. 23417 (hereinafter 
"Called "Hearing"), No. XVIII, p. 4. To the same effect see also the testimony of Fletcher B. Gibbs, 
representing the national catalogue committee of the National Association of Stationers and Manufac- 
turers, and of Frank L. D5'er, president of Thomas A. Edison (Inc.), and of Horace Pettit, Hearing, No. 
II; of R. E. Shanahan, general manager of Bissell Carpet Sweeper Co., Hearing, No. V; of Thomas W. 
Pelham, sales manager of Gillette Safety Razor Co., Hearing, No. VII; of M. Dorian, treasurer of Columbia 
Phonograph Co., and of G. A. Le Roy, representing the Western Clock Co., Hearing, No. VIII; of J. George 
Frederick, vice president of the Business Bourse, Hearing, No. IX; of J. A. Jochum, sales manager of 
Gem Cutlery Co., Hearing, No. XI; of Daniel Kops, Hearing, No. XIII; of Charles T. Johnson, president 
t)f Dover Mfg. Co., Hearing, No. XVII; of Pierrepont B. Noyes, president of Oneida Community, Hearing, 
No. XIX; of J. P. Archibald and John M. Roberts, representing the Pennsylvania Retail Jewelers' Asso- 
ciation, Hearing, No. XX; of William H. Ingersoll (manufacturer of "IngersoU watches") , Hearing, No. 
XXII; of Thomas A. Edison, Hearing, No. XXIII; and of George Eastman (Eastman Kodak Co.), Hearing, 
No. XXIV. 

« Hearing, No. Ill, p. 24. To the same effect see also the testimony of Frank L. Dyer, Hearing, No. 
II; Dr. L. H. Baekeland, Hearing, No. IV; Edwin J. Prindle, Hearing, No. X; Samuel Owen Edmonds, 
Hearing, No. XII, and Frederick P. Fish, Hearing, No. XXVI. 



THE PROPOSED PATENT LAW REVISION. 9 

used with a patent (m1 device is disposed of by the fact that such a prac- 
tical rnorionoly, Uir from offendintj: the ])ublic policy, actually promotes 
tlie t^eueral welfare; because tlie })ateiit owners can attain it only by 
cheapeninoj the cost of manufacture of the patented article, and can 
contuuie it only so lonL^ as their invention is not superseded bv sub- 
sequent inventions stih furtlier cheapeninjj: the cost of manufacture.^ 
As the Supreme Court explained in the Mimeograph case: ^ 

The inurkpt for tho sale of .-^udi articles (i. e.. unpatented tJiipplies) to tlie users 
of his machined, e.. the patent owner's patented machine), which, by nuch a con- 
dition, he takes to himseu, was a market which lie alone created bv the making and 
Hcllinj^ of a new invention. Had he kept his invention to himself, iio ink could have 
been sold by others for u«e upon inachin»'s t-nibodyint,' that invention. By selling 
it Hubject t<) the restriction he took nothinfj from others and in no wise restricted 
tlieir Icjritimate market. ♦ ♦ ♦ The jmblic is always free to take or refuse the 
patented article on the terms imposed. If they be too onerous or not in keeping; with 
the benefit.-^, the patentiMl invention will not lind a market. The public, by per- 
mitting; the invention to go unu.'<<Ml. lo.sos nothing which it had before, and when the 
patent exi)ires will be free to u.>'e the invention without compensation or restriction.' 

Thus are the first and second classes of evils relied upon by the 
commit t<'e proved unreal upon anaylsis. The third class of evils, 
by which the committee seeks to justify the substitute Oldfield bill, 
are "evils arising from <»\vners of patents suppressing the same or 
pr(>hi})iting their use in order to prevent competition with other 
patented or nn[)at<Mite(l articles sold by such owners of patents." * 

"That patents in the United States are bouj^ht up in larj^e num- 
bers for the purpose of suppressing; competition," continues the 
committee, "can not be doubted." ^ Sij^nilicantly enough, the 
commiliee cites no testimony that supports this statement. Indeed, 
as an eminent patent lawyer told the committee upon the close of 
the hearings: 'There is not a particle of evidence before the com- 
mittee, tbere is not anything in print anywhere that I have seen, 
which indicates tliat that is a matter of the slightest consccpience." " 
Instead, the committee goes outside of the testimony for proof of 
suppression an«l d(»clares: "It has been tlic subject of comment and 
complaint in the j)nl)lic press for y«»ars. Moreover, many instances 
can be foinul in the reports of the decisions of the Federal courts.'' * 
Quoting from Columbia Wire Co. v. Freeman Wire Co.,' the com- 
mittee says regarding one of the parties litigant: "It has become 
possessed of many, iif not all. of the valuable patents for the man- 
ufacture of barlx'd wire and machines for so doing." Hut the re- 
mainder of the sentence and the context llatly disprove every sug- 
gestion of suppression, either of patents or of competition. What 
the court says is — 

It has be<'ome posf<e88ed of nuiii\ . ii n<>l all. of liie valuable palenis lor the manu- 
factun^ of barbed wire, and lh<* ma«hine.s for s<j doing, and has granted a lirge number 
of licenses to persons and ct»rj)orauon.s under ii.s siid patents. The evidence further 
shows I hat it has not bound us lidMLsees to any prices, or in any manner limited or 
restricted tlieir s-iles or output. * * * In other words, there appearn to be, so far 
aa the compiainaut'a licenaeea are concerned, unrestricted competition in the sile of 
their products. 

' HeatoM-IVninsuhir Hutton-FAstoner Co. i. Kiireka Specialty Co.. 77 Fed. 2S8. 295 (C. C. A., Sixth Circ., 
1896; JndKf-s Tiift, Lurton. arul Hammond: Judge Lurton writing the opinion). 
« Henry f. A. B. Dick Co., 224 V . S. 1. 32. .«. :« (1912). 

• To the same efTert see the ca.ses collected in Henry v. A. B. Dick Co.. 224 U. S. 1 (1912): and also by the 
present writer in the Sherman Antitrust .Vet and the Patent Law, and the Supreme Cotirt on Patents, 
supra. 

♦ Report, p. 2. 

* Report, ji. 4. 

• Frederick P. Fish, Hearing, No. XXVI, p. l^ 
'71 Fed. 302, 306(1895). 



10 THE PROPOSED PATENT LAW REVISION. 

Indiana Manufacturing Co. v. J. I. Case Threshing Machine Co.,^ 
and National Harrow Co. v. Bement,^ which the committee cite, it 
may be noted were both reversed upon the law on appeal.^ The 
so-called Lock case,^ contrary to the impression conveyed by the 
committee, did not involve the purchase of patents for purposes of 
extinction, but raised the question whether an agreement to restrain 
trade in respect of both patented and unpatented locks was contrary 
to the Sherman Antitrust Act, and the court, of course, held that it 
was. Far from indorsing the objects of the substitute Oldfield bill, 
the court in this case emphatically dissents from the committee's 
position, sa\ang: ^ 

The right of a patentee to suppress his own rests upon ordinary considerations of 
property right. The public has no right to compel the use of patented devices or of 
unpatented devices, when that is inconsistent with fundamental rules of property. 

The Paper Bag Patent case,^ from which the committee quotes the 
opinion of a dissenting circuit judge,' who differed from the majority 
of his colleagues and from the decision of the Supreme Com"t of the 
United States, is described by the committee as the best known 
instance in the reports of suppression of a patent to prevent com- 
petition.^ This admission is important, because this case, as the 
Supreme Court pointed out in its decision,^ is a clear instance, not of 
the willful suppression of a patent, but simply of the rejection of one 
invention and the use of a better invention accomphshing the same 
purpose more satisfactorily.^^ 

The conclusion of the committee, therefore, that these citations 
are sufficient to show that the practice of buying up and suppressing 
patents is widely indulged in ^^ does not seem warranted. ^^ Equally 
untenable appears the contention that the aggregation of patents 
under single ownership is an oppressive monopoly, which should be 
forbidden. This contention was disposed of by the Court of Appeals 

1 148 Fed., 21 (1906). 

2 21 N. Y. App. Div.. 290 (1897). 

3 Indiana Manufacturing Co. v. J. I. Case Threshing Machine Co., 154 Fed., 365 (C. C. A., Seventh Circ . 
1907); Bement v. National Harrow Co., 186 U. S.. 70 (1902). 

4 Blount Manufacturing Co. v. Yale & Towne Manufac tarring Co., 166 Fed., 555 (1909). 

5 P. 559. 

6 Continental Paper Bag Co. v. Eastern Paper Bag Co., 150 Fed., 741 (1906); 210 U. S., 405 (1908). 
' Report, pp. 5-6. 

8 Report, p. 5. 

9 Pp. 427-429. 

10 One of the witnesses before the committee, referring particularly to this case, explained this 
point: ''Let us take the extreme case," said he, "of which I do not think there are many 
instances. A man has two patents, each of which is complete in itself and each of which is operative. 
He knows, because he studies the art, that one is better than the other. That is substantially 
the Paper Bag case, where the plaintifi was making first-class machines under one patent, and 
held another patent which he was not using, and which, we will assume, was radically independent of the 
one under which he worked. His machines were making exactly the same paper bags which could have 
been made by machines built under the other patent. He spent, very likely, hundreds of thousands of 
dollars in the development of the machine he was using. He gives the public the article that they want made 
on machines built under the patent which he uses. I say that under those circumstances there is absolutely 
no reason, based upon public policy, why that man should not hold his second patent, which he is aot using, 
for the sake of protecting him in the use of his first idea. That would give him the monopoly of the manufac- 
ture of one particular kind of paper bags onh*, and perhaps not of that. There are many kinds of paper 
bags in competition with each other; the patentees and manufacturers of to-day are trying to find the best 
machines for making them. It may be that he invented the second patent in his own factory. If he pur- 
chased it, his object very likely was that he might have this other way of making these same bags, so that 
if this other way turned out to be a better way lie might use it. If, in the course of time, this second inven- 
tion appears to be the better way, he will use' it." (Frederick P. Fish, Hearing, No. XXVI, pp. 9, 10.) 

11 Report, p. 5. 

12 Before taking leave of this point, it may not be amiss to quote the testimony of two witnesses, the first 
a leader of the patent bar who has appeared in most of the patent cases before the Supreme Court in recent 
years, and the second the greatest inventor of the age: "I personally can not think of an instance in my 
career of a meritorious patent being suppressed," says Frederick P. Fish, "I have known of the charge, 
but have in every case known that it was unfounded." (Hearing, No. XXVI, p. 13.) ''I have heard and 
read numerous statements that many corporations buy valuable inventions," says Thomas A. Edison, 
"but no one cites specific cases. I myself do not know of a single case. There may be cases where a firm 
or corporation has bought up an invention, introduced it, and afterwards bought up an improvement and 
ceased using the first patent — suppressed it, in fact. Why should that not be done? It is for the benefit of 



THE PROPOSED PATENT LAW RE\1SI0N. 11 

of the Seventh Circuit, in reversing one of the identical cases cited 
by the comnuttee.' 

Their contoruion comes to this. If he owned either alone, over that he would have 
complete dominion: owning both, he controls nothing. The public has no right in 
either invention. Therefore the public has the right to have them both in the mar- 
ket competing for buyers. Naught plus naught ; the sum of the two naughts is a sub- 
Btantive quantity. 

The value of the comment and complaint in the public press which 
the committee mentions as j)roving the suppression of invention 
does not merit serious discussion. Not a smgle instance of such 
comment and complaint Is specified in the committee's report. "I 
wanted, " declared the chairman when he presented the report to 
the House,' *'to get up as pood a report as we could, to make it as 
plain as possible." Since tliLs is the best showino^ the connnittee can 
make in respect to .suppression of inventions, it is not presumptuous 
to aflirm that present conditions recjuire no change m tne patent law 
upon this point. 

Much solicitude is evinced by the committee lest the existing pat- 
ent laws enable owners of patents to withdraw a large amount of 
personal ])ro])erty from the control of the State courts and State 
legislattu'es.^ ^'Nothing is more fundamental in our Government," 
declares the committee, 'than the clearly marked line between the 
jurisdiction of the State and of the Federal courts." * Nevertheless, 
the commiltcc rccomnHMids a scheme of comptdsory license which 
gives every Federal district court tiiroughout the United States 
power to hale before it every patent owner (excepting original invent- 
ors) whose invention for any reason whatsoever has not come into 
use within three years after the issiumce of the i)atent, and there- 
upon judicially to determine its value and compel the ])atent owner 
to grant to any competitor who asks it a license to use the patent 
upon such terms as the court nuiy fix. This would transform the 
72 Federal district coinls into "coints of patent commerce," to quote 
one of the witiu»sses before the committee. 

It embraces ( dllar !)U'.t4)ns and steamships. jcH'tbriishcs and transportation svstems, 
toilet articles and ttifety-appliance systems, telegraph systems and t<Mtl8. articles that 
go on the tables of the people, garments and i(H»dstiiffs. patent roads and buildings, 
inventiouB which have a restricted use in s])e<ml fields, and those which affect the 
great mass. In sh<trt, so sweeping are the powers created by the proposed law as to 
give the district Federal courts jurisdiction <ner all fields of commerce.* 

How the committee rec(Uiciles such a proposal with its professed 
abhorrence of anything that mav ignore and override the jurisdiction 
of the State courts * it is difliciilt to conceive. 

Economists have long recognized that all the a})palling conse- 
quences of overp(>])idation and starvation conditions have been 
staved off in the United States during the past 20 years only by the 

the puhllr that jt shojild pet the latast improvement. I can not .s«e why the public should be asked to 

chan^' "" - - • ■ ■ , -■ ■ - V ' . , .V . .. . _ ._^^j ^Q Yie could have a basis on 

whk-l iduced an improved machine. 

Befori _ , :.ore injustice has been worked 

to the public by the alleged suppression of patents (or other reasons than those which were due to improve- 
ment"? " f HeaVinj:, XX III. p. :h ^ The dLstin(ti->n thus drawn by Mr. Edison between the willful sup- 
t:. if ter careful experimentation and trial, in favor of 

' Miplish the same purpose more satisfactorily, must 

1« ill . IV. J.I'll,, in,- ^.i.i.i.i Mi .airlV. 

' Iri ' . J. I. Case Threshing Machine Co., 154 Fed., 365, 371 (1906). 

»( .' s, 19,2, p. 113;«. 

' Report, p. ill. 

* Fleport, p. 9. 

» Joseph J. O'lirien, heiirniK, No. XXVU, p. 94 



I 



12 THE PROPOSED PATENT LAW REVISIOIT. 

progress of invention.^ The result of such a scheme of compulsory 
license, it was graphically shown before the committee, would be to 
diminish the inventor's market for his invention, to enable any 
strong competitor to crush its weak rivals, to impede every patent 
owner in developing and introducing his invention, to retard the 
patenting of inventions, and to discourage the large-scale invention 
and industrial experimentation on which civilization depends for 
solving the increasing problems of existence.^ 

In its zeal to insure the nonenforcement of license restrictions, 
the committee proposes by the substitute Oldfield bill to enforce 
solely against patent owners a Draconian code of business practice 
which is not and never has been imposed upon any other class of 
roperty owners. Litigation under the Sherman Antitrust Act turns 
requently, if not generally, upon close questions of law. By a 
salutary result of the existing law property which is not in transit 
does not become forfeited in the event that a combination in restraint 
of trade is found to exist. The substitute Oldfield bill, however, 
provides that under such circumstances all property in the form 
of patents involved in such litigation shall be forfeited, while all 
other forms of property shall remain unaffected. Under the pro- 
visions of the bill the vendor of any patented article becomes a 
criminal, if he attempts to secure a year's business as a condition 
of selling to a retailer; if he attempts to hold the retailer bo his 
agreement to buy his patented goods exclusively or to a certain 
extent; if he attempts to hold the retailer to his agreement to main- 
tain a standard price on the patented goods; if he licenses the use 
of a delicate patented machine on condition that it be used only 
with specially prepared supplies or in continuity with specially 
adapted machinery necessary to insure perfect operation; if he 
avails himself of the quality of his patented inventions to induce 
licensees to use his machines, either exclusively or in part, for all 
their needs; if he agrees with a retailer in a town to sell his patented 
goods to no one else in the same town or to sell to other retailers 
only on less favorable terms, in consideration of which the retailer 
shall push the sale of the goods; or if he sells his patented goods in 
any particular territory at a less price than he seQs elsewhere. Each 
of these transactions, which good morals and honorable business 
practice, to-day and from time immemorial, have always sanc- 
tioned, is made by the bill conclusive proof of the violation of the 
Sherman Antitrust Act. The fact that the transactions might 
reasonably be shown to have no tendency to restrain trade can not 

1 "The period since 1891 has beon anything but one of impoverishment, and it is no uncertain guess which 
assigns a reason for this general prosperity. It has been due to two causes, acting together, and both of 
them must continue to act if we are destined to escape disaster. The first is production on a vast scale, 
carrying with it a corresponding increase of efliciency, and the second is improvement in productive method, 
the brilliant succession of mechanical inveation and other devices wliich, in every field of industry, have 
accomplished again and again what is called 'making two blades of grass grow "where one grew before.' 
* * * Technical improvement is highly indispensable. Without it, and with our increasing popula- 
tion, life on our planet would be unendtarable. Stop the succession of inventions that add to our powder 
over nature and you will liring labor soon to a starvation limit. Merely check the rapiditv of this tech- 
nical progress and you will cause grievous hardship."— John Bates Clark," professor of economics in Colum- 
bia University in the control of trusts, pp. 9-12 (1912). 

2 See the testimony of Frank L. Dyer, president of Thomas A. Edison (Inc.), Hearing, No. II; of H. 
Ward Leonard, chairman of the legislative committee of the Inventors' Guild. Hearing, Nos. Ill and IV; 
of Dr. L. H. Baekeland, president of the American Institute of Chemical Engineers and a member of the 
Inventors' Guild, Hearing, No. IV; of Edwin J. Prindle, Hearing No. IX; of Samuel Owen Edmonds, 
Hearing, No. XII; of Livingston Gifford, Hearing, No. XIV; of Spencer Miller, chief engineer of the 
Lidgerwood Manfacturing Co., Hearing, No. XXIV; of Frederick P. Fish, Hearing, No. XXVI; of Walter 
F. Rogers, president of the Patent Law Association of Washington; and of William W. Dodge, E. W. 
Bradford, and others. Hearing, No. XXVII. 



THE PROPOSED PATENT LAW REVISION. 13 

save the unluckv patent owner, for the bill expressly provides that 
"restraint shall Ix' conclusivoly deemed to have been or to be unrea- 
sonable and to be in violation of the provisions of said act'' ^ (i.e., the 
Sherman Antitrust Act) as to any party who performs any of these 
transactions. The penalty which the patent owner may suffer for 
doin^ anv of these thin<rs is the forfeiture of his patents, a fine of 
$5,0(J0, and a year's imprisonment; and the payment of threefold 
damages and the costs of suit and attorneys fees to anyone who 
comes in within three vears thereafter and proves any damage. 

The substitute Oldlicld bill forbids only patent owners to do these 
thinp^, and ex|)ressly leavt»s the owners of everv other form of prop- 
ertv absolutely free* to do any of them. Unlucky patent owners 
cailj^ht in the net may reflect that if they had only dealt in unpat- 
ented goods, instead of spending time and money developing new 
inventions, which their patents publish to the world to the end 
that in 17 vears the world may use them without cost, they could 
have avoided all their misfortunes. Is this the way by which Con- 
gress seeks to '■j)romote tb(» progress of science and useful arts"? 

Some amendnn-nts hi the j)atent law are certainly needed. Few 
will disagree with the House Committee on Patents that some legis- 
lation other than that proposed ui the substitute Oldfield bill, is 
refiiiired, "amendments, speciiieally hi the patent law, and particu- 
larlv some radical changes m the administration of the })atent law, 
both in the courts and m the Patent Office. ''= The committee con- 
tinues: "As respects the courts, two vital changes are essential — 
the present metliod of tryhig patent cases must be abandoned for a 
new one and a court of j)atent ai)peals must be established. * * * 
Changes should be maile in tin* e(jui|)ment and organization of the 
Patent Ollice to uicrease its efficiency and to secure for the public 
and inventors whom it serves the best possible service."* By changes 
of this sort rather than bv the radical innovations projmsed in the 
sul)stitutc Oldfield bill will the patent system of the I'nited States 
be improved. 



Gilbert IT Montague. 



New York City. 



> Sec. 5. « Report, p. 21. * Report, pp. 21, 23, 24. 



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